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2024 Supreme(Online)(ITAT) 1540
INCOME TAX APPELLATE TRIBUNAL (CHENNAI BENCH)
ABY T. VARKEY, JM, JAGADISH, AM
M/s.Mahindra Residential Developers Ltd. – Appellant
Versus
The ITO, Corporate Ward-4(1), Chennai – Respondent
Income Tax Appeal/ITA No.870/Chny/2017 | Income Tax Appeal/ITA Nos.338 & 339/Chny/2020
For the Appellants/Petitioners: Mr.Raghavan-Ramabadram, Ms. Bharathi Krishnaprasad
For the Respondents: Shri A. Sasikumar
To qualify for deductions under Section 80-IAB, a co-developer must comply with SEZ laws, specifically prohibiting the sale of residential units to outsiders and necessitating only leasing completed infrastructure.
Headnote:(A) Income Tax Act, 1961 - Section 80-IAB - Special Economic Zones Act, 2005 - Deduction denied - Assessee, a co-developer, claimed deduction under Section 80-IAB for AYs 2012-13, 2013-14, and 2014-15, but the deduction was denied on grounds of not developing SEZ as per relevant laws - Filing Form 10CCB not done within due date by the assessee - The revenue claimed that leasing and constructing residential units were against SEZ rules, equating perpetual leases to sales, which is not permitted - The court emphasized that the sale of residential units to outsiders violated the SEZ rules, stating, 'the conduct of the assessee clearly points to the fact that they acted in complete violation thereof and therefore the assessee was ineligible to claim a deduction u/s 80-IAB of the Act.' (Paras 3, 11, 32, 41).
Findings of Court:
The deduction claimed u/s 80-IAB was denied as the activities did not fulfill the requirements under SEZ laws.
Issues: The main issues included whether the assessee had violated SEZ rules while obtaining tax deductions and whether the alleged action constituted selling properties instead of leasing.
Ratio Decidendi: The court concluded that the perpetual leases granted by the assessee were effectively sales, violating SEZ regulations, thus denying the deduction claimed under Section 80-IAB.
Result: Appeals dismissed.
आदशे/ORDER
PER ABY T. VARKEY, JM:
These appeals have been preferred by the assessee against the orders dated 10.12.2017 & 31.12.2019 passed by the Ld. Commissioner of Income Tax (Appeals) (hereinafter ‘Ld.CIT(A)’) in relation to the assessment orders passed by the AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) for AYs 2012-13, 2013-14 & 2014-15.
2. It is noted that, in all these appeals, the common grievance of the assessee relates to the Ld. CIT(A)’s action of denying the benefit of deduction claimed u/s 80-IAB of the Act. Both the parties agreed that the facts involved in all these years are identical and therefore AY 2012-13 was agreed to be taken to be the lead assessment year whose result shall mutatis mutandis apply to AYs 2013-14 & 2014-15 as well.
3. Briefly the facts as noted are that, the assessee (M/s. MRDL) is a company approved as a Co-Developer for sector-specific SEZ in the Mahindra World City Developers SEZ at Chennai. For AY 2012-13, the assessee had filed its original return of income for AY 2012-13 on 29.09.2012 declaring NIL income, after claiming deduction u/s.10AA of the Act, amounting to Rs.13,61,22,751/-. Thereafter, the assessee is noted to have filed the revised return on 17.04.2013 showing total income at Rs.NIL but claiming deduction u/s.80-IAB of the Act, amounting to Rs.11,08,19,915/-. The case of the assessee was selected for scrutiny and notices u/s 143(2) and 142(1) were issued, which were complied with by the assessee. At the onset, the AO noted that the assessee didn’t file the Form 10CCB within the due date of filing of return of income and therefore he opined that the deduction claimed u/s 80-IAB ought to be disallowed on this count alone. On merits, the AO noted that, the assessee had developed residential infrastructure in 22.26 hectares at Mahindra World City, Chennai in the capacity of Co-Developer pursuant to an agreement with M/s. Mahindra World City Developers Limited (M/s. MWCDL) who was the main Owner/Developer of the SEZ. It was seen that the assessee had claimed deduction u/s 80-IAB of the Act in relation to the profits derived from the development of the aforesaid residential infrastructure. The AO observed that the deduction claimed u/s 80-IAB of the Act was untenable since the appellant had not undertaken any development of SEZ in accordance with the Special Economic Zones Act 2005 [hereinafter the SEZ Act] & Special Economic Zones Rules, 2006 [ hereinafter, the Rules]. The AO taking note of the provisions of SEZ Act, set out the role & responsibility of Developer which was not only development of infrastructural facilities but maintenance and operation of the same. The AO took cognizance of the fact that the assessee was approved as a Co-Developer and therefore it was to be treated at par as a ‘Developer’ for all intent and purpose. The AO thereafter took note of the concept of ‘processing area’ and ‘non-processing area’ set out in the SEZ Act & Rules and noted that the creation of social infrastructure in the ‘non-processing area’ was meant to aid the persons who are involved or linked with the infrastructure in the ‘Processing zone’. The Legislative intent according to him, was to aid the main activities in the processing Area by making available all the civic amenities like Hotel, Hospital, Schools, shopping mall, Residence, Entertainment, which are called ‘Social Infrastructure’. The AO further took note of the sub-Rules (9) and (10) of Rule 11 of SEZ Rules which read as follows: -
“11(9) The Developer shall not sell the land in a Special Economic Zone.
11(10) No vacant land in the non-processing area shall be leased for business and social purposes such as educational institutions, hospitals, hotels, recreation and entertainment facilities, residential and business complexes, to any person except a co-developer approved by the Board.
Provides that the developer or co-developer may lease the completed infrastructure along with the vacant land appurtenant t
